Are OPEC Trumped?

Trump’s victory means trouble for OPEC

48 hours ago, a Democratic party win in the US boded well for OPEC. Her party’s pro-stance on clean energy generation through subsidies and an intention of placing greater restrictions on fracking would seem to have supported growth in oil prices. In fact, Hilary’s policies do not appear to support the use of hydrocarbons which would have a negative effect on the exploration & production industry in general.

But, clearly, that scenario isn’t going to be played out now.

Trump’s primary objective is simple – build and grow the domestic energy market to become truly independent over the long term through a combination of loosened regulation and some would say encouragement of fossil fuel usage. Under Trump, global warming takes a back seat, and this has been made pretty clear through his campaign. Scrapping of major regulations put in place by Obama to reduce CO2 and to stop spending entirely on UN climate change measures. He promises to reverse regulations on the burning of coal – an industry that has a better chance under his regime.

The oil & gas industry should thrive under the a Trump-led Republican leadership; and encouragement for domestic producers to increase exploration activities, green lights for major pipelines and reduction in corporate tax for producers should improve margins and make lower oil prices a more feasible operating environment (effectively allowing the US oil industry to run at lower cost levels). “America First” means job creation and re-building of long-suffering industries, and will inevitably bring down prices for both electricity and gas in the US market and Trump has vowed to reinvigorate the industry.

For OPEC, this has got to be bad news. Trump’s promise of unleashing the US oil industry could have a profound negative effect on global oil price. This would mean a significant cut could be required by OPEC states to have a meaningful effect; at a time where many analysts are less confident on the organisation striking a deal. Cutting production to this extent is a tough call and would inevitably result in the loss of market share for the organisation. Half of the reason for previous holds in supply by OPEC was to make sure the US remained controllable. But this seems more of a challenge under Trump.

Trump’s promises to the American voting public of a bigger, better oil & gas industry certainly gained him votes from the working man – but how many of these materialise, and over what period of time, is yet to be seen. Market reaction has been of oil price reduction, and it’s hard to see a scenario where oil prices will rise significantly without major (and unlikely) intervention by OPEC.

About the author

Rod Westwood

Rod’s industry experience stems from a decade working in business consultancy specialising in the global oil & gas industry. During this time, he has provided commercial and market expertise to support finance raising and equity investments totalling in excess of $10 billion for clients in more than 50 countries. His passion for technology & energy go hand in hand in the development of the UtilityClick software platform.